CHAPTER 2
CHAPTER 2CONCEPTS ,ETHICS AND ROLES
KEY CONCEPTS IN CORPORATE GOVERNANCEKey concepts in corporate
governanceConceptExplanationResultsFairnessEquitable treatment of
all partiesAll shareholders a -3 .treated equally and nave the
opportunity for redress for violation of their
rightsOpenness/transparencyThe full, accurate, and timely
disclosure of informationFinancial and operational information is
available enabling outsiders to understand and analyse the
organisationIndependenceBeing free from biasNon-executive directors
and external auditors are required to be independent from the
companyProbity/honestyActing in an upright and honest mannerThe
company should behave honestlyKey concepts(
cont).CONCEPTEXPLANATIONOUTCOMEResponsibilityBeing responsible for
action or activitiesDirectors are responsible for the operation,
control and strategic direction of the
organisationAccountabilityBeing accountable to another party for
actions or activitiesThe board are accountable to shareholders who
have the right to receive information on the financial stewardship
of their investmentReputationThe estimation in which a company is
heldWhere inadequate corporate governance practices are suspected,
a company's reputation may be damaged.Key concepts
(cont).CONCEPTSEXPLANATION OUTCOME JudgementThe ability to judge,
make a decision, or form an opinion objectively, a,
authoritatively, and wiselyDirectors must be considered capable of
sound judgement.Integrity Adherence to moral and ethical
principlesDirectors and executives are required to demonstrate
integrity in carrying out their duties in the best -interests of
theConcept of ethics1.Ethics is the study of what is right or
wrong, what is good or bad,. It is the process of making decision
or choices of behaviour based on what is good or bad.2.In
organisations, there are official codes of ethics. In law and
medicine, professional codes of ethics are well enforced.
3.Business ethics refer to principles and standards that determine
acceptable conduct in business.
Role of ethics in BusinessCurb accounting fraud.Eliminate
deceptive advertising.Stop unfair competitive practices.Avoid
internet theft.Build trust.Promote confidence.Validate
relationships.Sources of unethical behaviourOverly aggressive
financial or business objectives.Abusive and intimidating
behaviour.Conflict of interest.Fairness and
honesty.Communication.Business relationships. Theories on Ethics
Utilitarian approachMoral duty theory.Justice theory.Cost-benefit
approach.Universalism approachThe moral duty theoryThis theory is
premised on the fact that there are clear obligations we have as
human beings:Care for our children.Not to commit murderTo be kindTo
bear childrenTo look after old peopleTo respect our parentsTo wash
our bodiesNot to cut down treesTo work hardTo make others happy
Moral duty theoriesThese theories are sometimes called
deontological or duty theories. The Greek work deon means duty.The
theories are non consequential which means that the duties are
enforced by nature and there is nothing we can do. We cannot ignore
them.The German philosopher, Samuel Pufendorf put these duties into
groups, according to their worth;Moral duty theoriesGroup A:To know
the existence and nature of God.To worship God.Group BDeveloping
ones skills and talents.Not harming our bodies through gluttony,
drunkenness and not killing oneself.Moral duty
theories(cont).Concerning our duties towards others, Pufendorf
divides these between absolute duties, which are universally
binding on people, and conditional duties, which are the result of
contrasts between people. Absolute duties are three:Avoid wronging
others,Treat people as equals, and Promote the good of others.Moral
duty theories (cont).British philosopher, W.D.Ross, W, gave a list
of prima facie duties, which are part of the fundamental nature of
the universe:Fidelity; duty to keep promises,Reparation: the duty
to compensate others when we harm them.Moral duty
theories(cont).Gratitude: the duty to thank those who help
us.Justice: the duty to recognise merit.Beneficence: the duty to
improve the conditions of others.Self: improvement: the duty to
improve our virtue and intelligence.Nonmaleficene: the duty to not
injure other.
Moral duty theoriesQ, Critically evaluate the argument advanced
by the Duty Theory that companies exist to serve the interests of
either shareholders or stakeholders.Industry Wide Ethical
IssuesBribing powerful officials in order to get bids and tenders
accepted and bribing competitor employees to get informational
leaks is a serious ethical issue in business. In fact, it is a
crime that is legally punishable in most countries today.Labor
related issues like gender discrimination at workplace, employee
harassment. minority community participation, working conditions
and child labour are also some general ethical issues.Industry Wide
Ethical IssuesBusiness practices like sourcing of materials,
quality of inputs in production, compromising on certain aspects
like product quality, safety, etc and deception in packaging,
quantity or size also fall in the purview of business ethics.Some
industries consciously omit the details of the side effects of the
usage of their products from the product packaging while some
indulge in controversial practices like animal testing and these
too are some of the ethical issues in businesses. Industry Wide
Ethical IssuesForcing labour to work at below minimum wages,
sweatshop work conditions, violation of worker rights and not
complying with health, safety and environmental standards are some
common current ethical issues.Company specific Ethical
IssuesShowing honesty, integrity and openness in consumer
relationships, addressing warranty and guarantee claims in an open
and transparent manner and involving the company in some kind of
social welfare causes is an ethical business practice that many are
yet to follow.Whether to accept moral responsibility of on-site
mishaps, spills, leaks and disasters and whether to make product
recalls if certain harmful information about diem comes to light.
are ethical issues that all businesses must be prepared for.Company
specific Ethical IssuesWhether to accept moral responsibility of
on-site mishaps, spills, leaks and disasters and whether to make
product recalls if certain harmful information about diem comes to
light. are ethical issues that all businesses must be prepared
for.Company specific Ethical IssuesUnethical business practices
like dumping good at loss making prices just to earn market shares
or to oust a new competitor from business, colluding wit h
competitors to fix higher prices, using high pressure selling
tactics, using deceptive advertising, etc are also some things that
need to be looked at.Some stronger ethical issues are related to
practices that are not easily detected, like releasing products
that have built-in obsolescence (to generate further demand for
future products) and indulging in accounting manipulations to
generate secret reserves or to show higher or lower profits as per
convenience. Code of ethics of business conductA code of ethics is
a strong set of rules or guidelines which spell out the way a
company should operate and employees should behave towards their
work. Ethical conduct is crucial. People in positions of power can
easily ignore the rules and break company laws. Issues that should
be dealt with in a code of ethics include the following:Code of
ethics of business conductIssues that should be dealt with in a
code of ethics include the following:
Avoiding conflicts of interests.Employees getting opportunities
for personal gain by using company resources or their positions in
the company.Confidentiality.Code of ethics of business conductFair
dealing with customers, suppliers, employees and
competitors.Protection and proper use of company
resources.Compliance with laws and regulations.Encouraging the
reporting of illegal and unethical behavior.DUTIES OF COMPANY
SECRETARY IN CORPORATE GOVERNANCEBoard MeetingsFacilitate the
smooth operation of the companys formal decision making and
reporting machinery; organizing board and board committee meetings
(e.g. audit, remuneration, nomination committee etc);DUTIES OF
COMPANY SECRETARYGeneral MeetingsEnsuring that an annual general
meeting is held in accordance with the requirements of the
Companies Act and the companies Articles of Association; obtaining
internal and external agreement to all documentation for
circulation to shareholders; preparing and issuing notices of
meetings, and distributing proxy forms; DUTIES OF COMPANY
SECRETARYMemorandum and Articles of AssociationEnsuring that the
company complies with its Memorandum and Articles of Association
and, drafting and incorporating amendments in accordance with
correct procedures.DUTIES OF COMPANY SECRETARYStock Exchange
Requirementssupervising the implementation of the model code and/or
the company code for dealing in the companys securities, as
appropriate, managing relations with the Stock Exchange through the
companys brokers; releasing information to the market;DUTIES OF
COMPANY SECRETARYStatutory RegistersMaintaining the following
statutory registers:MembersCompany chargesDirectors and secretary
Directors interests in shares and debenturesInterests in voting
shares (substantial holdings and those notified in pursuance of a
s.212 notice)Debentures holders (if applicable).DUTIES OF COMPANY
SECRETARYStatutory Returns Filling information with the Registrar
of Companies to report certain changes regarding the company or to
comply with requirements for periodic filing. Of particular
importance in this regard are:Annual returnsReport and
accountsAmended memorandum and Articles of AssociationReturns of
allotmentsNotice of appointment, removal and resignation of
directors and the secretaryNotices of removal or registration of
the auditorsChange of registered officeResolutions in accordance
with The Companies Act.DUTIES OF COMPANY SECRETARYReturns of
allotmentsNotice of appointment, removal and resignation of
directors and the secretaryNotices of removal or registration of
the auditorsChange of registered officeResolutions in accordance
with The Companies Act.DUTIES OF COMPANY SECRETARYReport and
Accounts Co-ordinating the publication and distribution of the
companys annual report and accounts and interim statements, in
consultation with the companys internal and external advisers, in
particular, when preparing the directors report.DUTIES OF COMPANY
SECRETARYShare Registration Maintaining the companys register of
members; dealing with transfers and other matters affecting
share-holdings; dealing with queries and requests from
shareholders.DUTIES OF COMPANY SECRETARYShareholder
communicationsCommunicating with the shareholders (e.g through
circulars); arranging payment of dividends and interest; issuing
documentation regarding rights issues and capitalization issues;
maintaining good general shareholder relations; maintaining good
relations with institutional shareholders and their investment
committees.DUTIES OF COMPANY SECRETARYShareholder Monitoring
Monitoring movements on the register of members to identify any
apparent stakebuilding in the companys shares by potential
take-over bidders; making appropriate inquiries of members as to
beneficial ownership of holdingsDUTIES OF COMPANY SECRETARYShare
and Capital Issues and Restructuring Implementing properly
authorized changes in the structure of the companys share and loan
capital; devising implementing and administering directors and
employees share participation schemes.
